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3 reasons why lending companies should use open banking

The financial environment is changing significantly in Europe and beyond, putting pressure on the lending market. Current conditions raise demand for instant credit products which forces lenders to go digital. Lenders are faced with a serious challenge to ensure business continuity. They need to create a mechanism that allows the assessment of borrowers without the need for their physical presence. How can lenders accelerate and improve the existing processes by digitalisation? How can lenders keep a stable level of new customer acquisition and ensure a good assessment level of borrowers in these uncertain times? 

Open banking presents lenders with a unique opportunity to improve their businesses by designing a quick, reliable credit assessment based on instant information about the client, enriched with insights, and as a result providing a credit decision in no time. We've prepared the top 3 reasons why lenders should use open banking today.

1. Mitigate the risks associated with outdated information

Some credit bureaus and credit reference agencies agreed to freeze the credit scores of potential borrowers. In these circumstances the lender needs an instant way of getting the information about the client and his current financial state. 

  • Instant access to up-to-date financial information

People’s financial circumstances could change drastically in a few days, yet traditional credit bureau data usually incorporates financial records only from months, if not years back. 

Using open banking, a lender can get instant bank account statements from borrower’s accounts in any financial institution across the EU in seconds. The connection is done automatically and as a result, the lender gets a trustful source of up-to-date information without any option for the borrower to manipulate the records.

  • Verified source of income (basic salary, freelance, expat, etc.)

By accessing open banking channels, data aggregator can provide a detailed analysis on the borrowers sources of income, including any self-employed activity or income originated from other countries. Lenders can instantly receive the borrower's transactions sorted into categories, recognise spending patterns, and identify income, investments or other loans.

  • Determine borrower’s lending limits

Getting a historical track record of borrower’s financial statements allows to better understand the day-by-day spending patterns of the applicant, his current liabilities and determine what is the amount the person can return without negative effect on personal budget. This enables the lender to provide a more accurate proposal for the borrower with a higher precision score.

2. Create a fully digital lending cycle

With the existing technologies and the new PSD2 regulation in the EU, any lender can now streamline the lending process by instantly getting access to loan applicants' financial data with their consent, analyze it in real-time and provide an instant credit decision. Instead of taking borrowers through time-consuming procedures - asking them to come to a specific office, provide their bank statements, proof of ID, proof of their salary and employer, lenders can now have an overview of the financial situation in minutes, from distance. Digitalisation comes with optimisation of many operational processes and as a result leads to faster and fairer offerings. 

How does this work? 

Let’s see a typical use case where all the lending process is online:

  1. Customer fills in a loan application and gives consent for connection to his bank accounts

  2. Data aggregator connects to bank accounts using open banking channels and retrieves financial data

  3. Retrieved bank data gets cleaned up and enriched by adding merchant information, categorizing transactions and by other value-added services

  4. Lender receives the applicant’s enriched financial data in PDF, CSV format or via API to further analyze the information

  5. Lender takes a credit decision and presents it to the borrower

What about customers’ trust? Will they actually connect their bank account?

Solving the real customer pain when needed and being able to provide instant loan decisions is king here. Current stats show that 71% of customers are happy to connect their bank account if it speeds up the decision-making process. Displaying security screens to customers before requesting to connect a bank account helps as well. It increases the bank connection ratio by 7%-20% depending on the country and implementation.

3. Stay up-to-date with the borrower's financial health all the time

Using open banking channels, the lender has a unique opportunity to keep track of the borrower's financial life even after the loan has been granted. Lenders can see what is happening with his finances in nearly real time, for the next 90 days or longer, with the borrower’s consent. This enables to create unique offerings relevant for the borrower and boost his loyalty to a totally new level. Our clients’ end-users are twice more likely to take a loan from the same lender after open banking functionality was added to their digital process.

Furthermore, lenders who offer their services via apps, can enrich the user-experience by adding new multi-banking and money management tools. This results in increased customer engagement and also allows the lender to be part of their daily life. We observe this approach gaining interest on the market now, while even credit bureaus acquire white label money management apps.



While digitalisation becomes a new reality, it is also the only way for businesses to survive and then thrive. It's time to digitalise your entire lending cycle and improve the customer experience and relationships using open banking!


Comments: (5)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 23 April, 2020, 12:12Be the first to give this comment the thumbs up 0 likes

Nonbank Lenders like BillMeLater and Affirm (USA), ZestMoney and LazyPay (India) have been providing Instant Credit for 5-10 years without accessing bank accounts. While this post explains how Open Banking can be used by Lenders, I didn't find a compelling reason for why Open Banking is required by Lenders in the first place. 

Lisa Gutu
Lisa Gutu - Yapily - London 23 April, 2020, 15:081 like 1 like

Hi Ketharaman! That's great that there are other alternative ways of providing instant credit in the US and India. However, this article is explaining the main benefits of using open banking in EU, where we have the PSD2 legislation. Here a good part of lenders are relying on financial bank data in one way or another, but most of the processes are still manual (e.g. collecting bank statements). Using open banking, lenders can significantly improve their existing flows and get more insights on the end-customers for a more precise analysis.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 23 April, 2020, 15:58Be the first to give this comment the thumbs up 0 likes

What about Klarna, then? The Swedish lender has been doing virtually a carbon copy in EU of what BML was doing in the US. Memory serves, it's at least 10 years old and has been working without Open Banking. 

Gabriel Onyango
Gabriel Onyango - Open Banking Sherpa - Yala 02 August, 2021, 07:44Be the first to give this comment the thumbs up 0 likes

@Ketharaman, sounds you're wondering what all the fuss is about open banking when lenders have been doing their thing well without it.

I did some digging, Klarna uses Illion for credit decisioning.

According to Illiion, this is how they collect their data:

"illion has a large team of people collecting information directly from companies you do business with, such as banks, insurance providers and utility companies. Your score is calculated from this information."

Note: They said 'a large team'

Open Banking APIs take away that manpower need, and if they expand it to include Utility data, insurance, non-current accounts
(e.g savings), companies like Illion won't need as many people.

Also, I reckon they'd have to get into aggreements with individual companies for this info..

Open Banking automates this and makes forces that data out, that's the value.

I remember reading a post from Flinks founder (a bank data aggregator in the Canadian and US market, about how Plaid's data was unreliable for the companies using it and that's why they were stealing market share from them because their data agreements were better.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 02 August, 2021, 09:51Be the first to give this comment the thumbs up 0 likes

TY @GabrielOnyango for the clarification but can you say for sure that Klarna uses illlion data outside of Australia?

As you can see from this screenshot, when I tried to register and get a free credit report, illion insisted on Proof of ID and Address in Australia.

This is not the first time a random new kid on the block is claiming that an incumbent 800 lb chimpanzee is inferior and that it will kill it, yada yada yada. Not saying Flinks can't disrupt / make a dent on Plaid but it's highly unlikely to happen via superior data quality. From what I know, data quality does not matter as much in the present days of credit decisioning via AI / ML compared to Rules as in the past.

Lisa Gutu

Lisa Gutu

VP of Sales


Member since

26 Jun 2017



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